Why Do I Need An Estate Plan?

Written by Louis Waple on 04/12/2016

To answer this question, ask another question. What is an estate? Frequently people associate an “estate” as an accumulation of wealth. While this may be true, an estate is simply your property and/or possessions. We all have accumulated property and possessions that require management, both in life and in death. However, many do not see themselves as wealthy, and therefore may not see the need for estate planning. Perhaps we should be more precise, do you need Wealth Protection and Planning or Estate Planning? While a smaller sample of the population requires wealth protection and planning, most, if not all should have an effective estate plan.

Youth is relative, but I would argue that so long as you are able to speak for yourself and perform your essential daily activities, you qualify. When we are young, it is hard to imagine a life where we are unable to manage our affairs, where we become completely dependent on the assistance and decision making of others. Perhaps this comes from a sense of denial, a refusal to consider such a dark possibility. Whatever the reason, the reality is that as our population continues to push the boundaries of life expectancy, the risk increases that we will be faced with the inability to manage our affairs. What happens then?

Ask yourself, in the event that you cannot effectively manage your affairs, make fundamental personal decisions and/or communicate your intentions, who will make decisions for you? Who will take care of your property? How will those persons have access to your accounts and manage it for your best interest? How will your family know what you want? Too often, people leave these questions unanswered because they mistakenly associate estate planning with wealth protection.

Assume that you have sufficient means to retire—providing payment of your living expenses and future medical needs. How will you manage these assets after the effects of severe dementia or advanced Alzheimer’s disease leave you with the inability to manage your affairs? At that time, you need an agent appointed to serve your best interests—someone who will help to make decisions concerning management of your health care and finances. An effective estate plan, not only provides clear instruction for how to distribute your property after you die but also allows you to designate specific persons to act on your behalf while your living.

Two documents, in particular, provide clear instruction in your estate plan. A Healthcare Power of Attorney is a legal document that allows you appoint an agent (family member or trusted friend) to speak for you, to make decisions about your healthcare needs, when you are unable to effectively communicate to your medical providers. A Durable Financial Power of Attorney is a legal document used to designate a family member or trusted friend to manage your assets: bank accounts, retirement accounts, personal and real property. A financial power of attorney allows a trusted person to gain access to your assets and to employ your assets for your benefit by providing payment of your bills and/or securing access to necessary long-term medical care.

If you do not have these documents and you have severe dementia, family and trusted friends cannot easily step in to act on your behalf. To further complicate the situation, family and trusted friends—without expression of your clear intentions—may disagree as to who should act on your behalf and/or how they should act. Under these circumstances, families are often forced to petition for guardianship, a process that involves litigation to determine whether a person is truly incapable of managing his or her own affairs and who should serve as the agent to manage healthcare and financial matters. At best, a guardianship is a legal formality, allowing the court to intervene on your behalf. At worst, the guardianship process is a highly contested and divisive process, resulting in a significant expense (which could be paid, in part, from your assets). Too often families are torn apart and necessary assets are wasted on legal fees because an individual, while they were young, failed to prepare a basic estate plan.

If you have questions about how to create an effective estate plan so you can avoid legal proceedings or worse, unnecessary family conflict, talk to an attorney. People are often surprised by how simple the process can be. The proverbial ounce of prevention is much better than the several pounds of cure.